‘There Is No Alternative?’
A share, like most other things, is worth what someone else will pay you for it. That depends on the psychology of crowds, greed, fear and momentum and all kinds of exciting things.
Two factors must logically override all others: the earnings stream that a company will generate for you in the future, and the interest rate at which those earnings should be discounted.
There has been a sudden return to the old status quo, in which short-term bonds yielded more than stocks.
The TINA (There Is No Alternative) support that low bond yields offered share valuations for a decade after the Global Financial Crisis is now what Ian Harnett of Absolute Strategy Research in London dubs TINY — There Is No Yield on stocks
Now long Treasuries once again yielding more than stocks.
This used to be the norm, and was thought to be necessary to compensate investors for bonds’ lack of ability to grow.
It also grows more difficult to explain just why stocks have rallied the way they have.
Robert Shiller. It compares prices to average inflation-adjusted earnings over the previous 10 years, rather than just one.
With the 10-year yield at 4.6%, that does suggest that persistent rates at these levels will be a problem for stocks.
It is no longer a cardinal sin to imagine the Fed not cutting rates at all in 2024.
John Authers Bloomberg 16 april 2024
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